• 3Q revenue in line with expectation
• 3Q PATMI came in 9.3% lower than expected, dragged down by one-time events of $20.9mn from associated & JV companies
• Maintain NEUTRAL; new target price of $2.66 (previously $2.81), as we lower our FY19e earnings estimate by 3%

The Positives

• Lower material cost was the main driver for lower opex. Material cost was $12.4mn lower YoY (-27% YoY), which was the main contributor to the $12.2mn lower opex (-4.8% YoY). The lower material cost was in line with the lower workload. Material cost is the second-largest cost component and made up 14% of opex. The largest cost component of staff costs is 51% of opex.

The Negatives

• Core Company EBIT continues to weaken. Lower revenue from airframe and fleet management has been an ongoing issue. Lower airframe revenue is a structural issue of less frequent hangar visits as airframe reliability improves from materials such as composites. Likewise for lower fleet management revenue is due to structural issue of the service being packaged jointly with the aircraft OEM. For SIAEC, some of its fleet management contracts had been novated to its associated company, Boeing Asia Pacific Aviation Services Pte. Ltd. (BAPAS).
• Negative surprise of 53% YoY lower and 36% QoQ lower profit from associated and JV companies. This was from one-time events of – 1) Revision in fee structure of an engine shop; 2) Foreign exchange adjustment due to change in functional currency of an associated company; 3) Tax charge booked by certain associated companies arising from re-structuring. We were expecting 28% YoY lower and only 1.7% QoQ lower profit.

Outlook

The outlook is negative. The core Company operations remain challenged by longer maintenance intervals and lighter work content. We were expecting the contribution from engine shop visits at the associates & JV to have stabilised, but this was marred by the one-time events. We are cautious over further negative impact from restructuring of other associated and JV companies.

Maintain Neutral; new target price of S$2.66 (previously $2.81)

We have lowered our FY19e earnings estimate by 3%. SIAEC is in a net cash position and offers a dividend yield of 4.6%. Our target price gives an implied FY19e forward P/E multiple of 20.1 times.